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What is going on with Alitalia

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This has been a hot topic for Italian financial news papers here in Italy over the past weeks. What is going on with Alitalia?

Alitalia A320 Taxiing

Let’s rewind time a little

Back in 2014 Alitalia was in a very similar predicament it is in now. The company was risking bankruptcy (just as it is now) and this was avoided thanks to the Alitalia-Etihad deal. The Abu Dhabi based airline agreed to invest in the Italian carrier at the condition that a consistent restructuring of Alitalia would take place.

In an initial phase the management addressed the easiest issues to face. But they soon needed to face the main problem that weights down Alitalia’s finances. The airline is over staffed. All owners until this point had attempted to solve this issue but non had success.

What Happened With Etihad

Etihad too gave it a try. Proposing a staff reduction that would help lighten the harsh accounting situation. The employees were give the last word to accept or decline the deal. It was clear all along that in case of a negative vote the UAE airline would pull out of the airline putting all worker’s jobs at risk. Nonetheless the deal did not pass, putting in serious jeopardy the airline’s future.

The vote took place in 2017, since then the situation has changed very little. The Italian government appointed new managers to take over the company while a search for new investors would take place. Also since then the government granted the airline 2 loans to maintain normal operations summing up 1,3 billion euros.

Although operational results have improved the airlines finances haven’t significantly. The airline has become one of Europe’s most punctual carries but burns tens of thousands of euros every single day.

And Now The New Government

After the 2018 elections the new government looking to gather consent announced that they had a solution to bring new life to Alitalia. The plan would see the state owned Ferrovie dello Stato railway company along side with the ministry of finances enter the capital of a new company.

These two parties can’t ensure enough funds to launch this new company and started seeking help. The turned toward the largest groups in Italy, finding the interest of the Benetton owned Atlantia. This is the company which manages most of Italy’s motorway network. Yet this was not enough either, as a industrial partner was also needed. In simpler terms another airline that would invest in Alitalia was needed.

The Delta Interest

First it seemed that Delta was the right partner. The Italian government had planned for the American airline to buy into a bigger portion of the company than Delta intended to. Which meant there were two possibilities either the government or Atlantia increased their quota or a new partner was needed.

Delta 757

Because at this time in Italy putting more money into Alitalia is frown upon by the public opinion, the first option wasn’t a viable alternative. That’s when Lufthansa comes into the scene.

Then Lufthansa

The German national carrier has great interest in the Italian market. This would be a great opportunity for them to further strengthen their presence. The cash the German carrier is putting on the table is very attractive and would allow the launch of the new company. We’re talking of about 200 million euros. There’s a but.

The But With Lufthansa

Lufthansa told the Italian government they are interested in a deal for the new Alitalia at one condition. Which is very similar to what Etihad had requested 2 years ago. There must a be a staff reduction, a significant reduction of about 3500 units.

It’s like a dog chasing its own tail. And now the Italian government seems to be in the very uncomfortable position of having to decide between two very unpopular options: letting Italy’s biggest company fail or letting go such a big part of Alitalia’s staff. Either way it’s going to cost the government consent.

To Sum It Up

To sum it up, it’s really not clear what the faith of the Italian flag carrier will be. But one aspect is crystal clear. Alitalia has an ageing fleet which isn’t all that competitive for services provided and for fuel efficiency. Whoever will take over the airline will have to invest a great amount of funds in new fuel efficient aircrafts. It is incredible to think that a country like Italy doesn’t have a carrier that can attract and handle the huge number of tourists that visit the country.

Take me as an example. I live an hour and a half from Fiumicino airport Alitalia’s main hub and travel about every 18 months to South Korea, yet I never fly with them. I choose Korean Air over them as the fares are cheaper and the in flight service is much better. As me many other people do the same, so much so that Alitalia only has a market share of 6% on international routes.


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